Askari Metals (ASX: AS2) reports on a lithium find at its Uis project in Namibia. The shares promptly fall 21%. It's possible to read this as something of the shine coming off the lithium exploration business. It's also possible to note that this is a very preliminary finding and that they've not found that much lithium to boot. But it is still true - a prospective lithium find has just decreased the value of the company that found it. Something in the lithium world might be changing here.
One way of viewing this is to look at the details of the claimed find. Which is not, if we're honest about it, all that impressive: “Assays from this initial drilling phase reveal the average lithium grade of 510 ppm Li is 17 times greater than the regional background value” Well, yes, greater than regional background is fun but 0.05% isn't thought of as all that much lithium. We tend to think that multiples of that is required for a project to be economic. But as they say that's all very early stages: “It is not possible to estimate the percentage of lithium mineralization by visual estimates and this will be determined by the laboratory results which will be reported in full in a future report, expected within the next 8-10
Weeks” So the announcement is really that we've found something that contains lithium but we don't know how much. Not the sort of announcement to set investment markets alight.
Askari Metals share price from ASX
There is another way to look at this though, from the point of view of the whole market. Lithium is a commodity, producers get paid the market price. No producer has control over their selling price. Therefore the price gained for output depends upon both demand and also how many other lithium mines open up around the world. And there are simply so many - hundreds, no really hundreds - of companies out there looking for the metal. Most of them will fail because that's the normal result for an exploration miner but there are enough finds of this and higher levels of concentration that there's just no reason to consider a lithium shortage 5 and 10 years out. Sure, it takes time to get a mine working but we've not got enough places where we could build a mine that we're simply not short of either mine sites or, in that future, lithium.
Well, if we're not going to have a lithium shortage then the current high price - driven by shortage - is going to decline, isn't it? That is, every new lithium find makes every other lithium find worth less. This is the way metals markets normally work too - the Earth is such a big place that supply usually does expand more than demand.
Which gives us our other possible reason for the share price decline here. Being a potential lithium miner just isn't as sexy as it once was.